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Sony: Take That, Amazon!

Amazon (AMZN) Chief Executive Jeff Bezos won't tell you how many Kindles he's sold, but he's happy to share the number of e-book titles available on the device: 250,000, at last count.

With one fell swoop, a rival has made that library look small. On Mar. 19, Sony (SNE) announced the addition of 500,000 titles to the collection of 100,000 e-books currently available to Sony Reader devices. Sony is giving away the books through a partnership with Google (GOOG), which has already scanned and stored some 7 million books for its Google Book Search project. Neither partner disclosed details of the arrangement, but Google says that more of the public domain titles it has scanned will be available to Sony Readers in the future.

In theory, the availability of more books from Sony could take momentum away from Amazon, which has benefited from buzz around its Kindle 2 reader in recent months. "Part of Amazon's shtick about the value of [the Kindle] is the size of their library," says Michael Norris, an analyst at media researcher Simba Information. Many of Sony's free titles cost money on the Kindle. Kenneth Grahame's children's classic, The Wind in the Willows, will set the buyer back $2.39, for instance.

Sony Focused on Devices

But more than anything, the partnership underscores a key distinction between the Sony and Amazon strategies that in the long run could work to Amazon's advantage. Amazon, which recently began selling e-books to users of devices other than the Kindle, including Apple's (AAPL) iPhone, has shown it's as interested in selling digital books as it is in selling machines.

Meantime, by loading its reader with free books, Sony may be more focused on devices. "Amazon's business is selling books, and Sony's business is selling hardware," says Gartner Group's (ITT) Van Baker. The company has sold more than 400,000 Sony Readers, which now cost between $300 and $350. Amazon hasnât disclosed the number of Kindle devices it has sold, which cost $359, but Citigroup (C) analyst Mark Mahaney estimated that the company had sold 500,000 by the end of 2008.

For starters, the Amazon approach may appeal to people who are interested in newer, more expensive books, such as New York Times bestsellers, Baker says. At $10 bucks a pop through Amazon, books add up. Sure, Sony lures e-reader buyers with free books, but at some stage, sales of digital books will outweigh the revenue generated through the sale of a machine.

Missing: A Wireless Store

And even though free books enhance the appeal of the Sony Reader, its hardware still lacks one feature that's been most important to Kindle's success: a wireless store. Unlike Kindle owners, who can download books to their device wherever they are, Sony Reader users must plug into their computers. "We will launch a wireless reader," says Steve Haber, president of Sony's digital reading division, though he doesn't specify when.

Sony could see an unintended effect of releasing so many free books on its platform: downward pressure on demand for its paid books. "If you're selling a book for $9.99 and it's going to be on a virtual shelf with half a million books that are available for free, questions about value come into play," Simba's Norris says.

Sony's approach has some advantages. The company has adopted a standard for e-books called ePub that essentially means Sony e-books can be read on other devices that use that same standard. Amazon's books have to be read on devices it has approved. "Sony's ePub announcement was a terrific way for them to show that they're willing to support more open formats than Amazon is," says Joe Wikert, general manager at technology researcher O'Reilly.

Still, Amazon isn't likely to sit on the sidelines while Sony scores points with readers.